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News stories glue portfolio managers and analysts to their screens. Each story feeds into a positive or negative bias. What if I could automate that? What if I could read everything as it comes out and sort it according to positive and negative news for a company? I could react systematically, quickly and across more stocks. I might even replace the role of the analyst.

Machine-readable news starts with exactly this economic intuition.

Disaffection with existing quantitative trading signals has brought it to investor attention. Advances in linguistic processing and the steady decline in computing costs have made it better and cheaper than before. And a raft of academic and industry papers have guided the way. Read the rest of this entry »

I’ve had the date circled in red for 35 years, and now it’s time to move. Year after year after year you are going to see more and more songs coming back to songwriters and having more and more influence on the market. We will own that music, and it’s still valuable.

Rick Carnes, president of the Songwriters Guild of America, remarking on the prospect of exercising termination rights as allowed by the 1976 Federal Copyright Act. The rights allow performers to reclaim copyright for songs after 35 years. Because the Act was passed in 1978, the earliest expected termination will be in 2013: via NYT

This is a life-threatening change for them, the legal equivalent of Internet technology.

Kenneth J. Abdo, chair of the termination rights working group for the National Academy of Recording Arts and Sciences: via NYT

Simply give them what they want. Freedom isn’t for anything in particular, only an assurance of non-interference with any individual’s needs or wants. Start with market democracy. Destroy the elite institutions that instruct individuals on what to do and how to behave. Allow individuals to determine their own needs and wants. And the market will rise up to satisfy their needs. This would fulfill Isaiah Berlin’s notion of negative liberty and his concern that freedom for something, some ideal, to make the world a better place, would lead to tyranny.

It’s the subject of the The Trap, three part series by British documentary film-maker and antagonist, Adam Curtis. Parts one through three are linked below.

More on the documentary, The Trap, by Adam Curtis at google video, overview

Part One – F**k You Buddy, (11 March 2007)

Part Two – Lonely Robot, (18 March 2007)

Are the markets a means of consent? –Thomas Frank

Part Three – We Will Force You to Be Free (25 March 2007)

The third film in the series provides an astonishing analysis and indictment of Paul Bremmer’s transitional government program in Iraq. Remove the government apparatus. Immediately privatize all state assets. Encourage reconstruction through the efforts of multinational corporations with the promise of tax-free profits. Unfortunately, rather than coalesce into a shining economic and political success, Iraq erupted with violence and burned its immediate economic prospects as a result of Bremmer’s policies.

A former financial analyst at NVIDIA pleaded guilty today of criminal conspiracy and insider trading charges. Sonny Nguyen, 39, agreed to provide material nonpublic information he gathered in his role at NVIDIA to peers in an insider trading ring that allegedly spanned, among others, Winifred Jiau, a commonly used expert Primary Global Research LLC network of consultants.

Though “Wini” has not yet plead guilty, she has come under allegations of participating in and promoting insider trading through her engagement with Primary Global. It seems that Nguyen was perhaps one of whom she meant when she was quoted as saying, “As soon as I get it, I give you guys a buzz.”

It would almost seem that the probe is widening, but it’s not. If anything, it appears to be narrowing.

Today’s news began with open speculation by the WSJ that investigators shifted their focus to the principals of Primary Global: Unni Narayanan and Phani Saripella. The shift would appear to match the circumstances. Nguyen claims to have provided Wini inside information. Sam Barai, best known for his colorful instructions to his analyst who had been cooperating with investigators, pleaded guilty today and, according to the WSJ, “the probe of Messrs. Narayanan and Saripella, both former employees of Intel Corp., is being aided by one of their former clients, former hedge-fund founder Sam Barai.”

Investigators have illuminated what looks like a rich vein of corruption, circumscribed by a series of bad actors, both admitted and alleged. If no more convictions come of this, at least it will serve as a lesson describing the importance of compliance policies, procedures, and systems organized by industry-leaders, such as Gerson Lehrman Group, when speaking with outside experts, and at most, it may provide the contours of a gripping movie.

The investment industry is resilient and will continue conducting diligent company research and analysis while the investigations play out. As part of that process, companies and individuals will need to individually judge the potential reputational impact of using expert consultants. But given the need for quality information, the expert network industry — or its next incarnation — undoubtedly will remain a part of many analysts’ toolboxes.

Glenn Doggett, Director of Standards of Practice, CFA Institute: via CFA Institute. Doggett reminds us that there have been bad actors outside of expert networks and bad actors inside of expert networks, but expert networks or their next incarnation will continue to provide an important research service.

Our biggest fear is Raj was found not guilty

Lee S. Ainslie III, managing partner of Maverick Capital: via WSJ

The expert network brand has been severely damaged. Most insider-trading investigations to date have more to do with direct, corrupt relationships between insiders and their investment brethren. But these became synonymous with the handful of exchanges alleged to have been facilitated by the likes of Guidepoint Global and Primary Global. Through a failure of analysis, insider trading and expert networks became one and the same.

Whether it was Rajat Gupta and Raj Rajratanam or the alleged extracurricular activities of various attorneys and accountants accused of passing along material nonpublic information to a scurrilous group of investors in search of an edge, though they weren’t facilitated by a network, they certainly stained the networks. The consequences will be pervasive and persistent for the industry, and we can already see a handful of changes – among them, compliance, consolidation and repositioning. Nonetheless, the consequences will be good, and they will reinforce the benefits of expert networks. Read the rest of this entry »

Even inside information from an ‘expert network’ would not have helped.

–Yves Smith, Naked Capitalism

Not even an expert network would have helped, says Yves Smith of the earthquake in Japan, rather blithely suggesting that an expert network is nothing more than a vehicle with which to exchange material non-public information. Would it were the case. If only inside information equated to expert networks, imagine how easy enforcement of insider trading would be! Shut down the networks, Smith might say, and we will purge the rot of a rigged game from the system.

But inside information and expert networks are different things. To conflate them is a failure of analysis and a lazy view on the role of expert networks, the problem of inside information, and research in general. Read the rest of this entry »

Some 33% of US stock trading activity takes place outside of exchanges. Four years ago, only 20% of trading did. What does that mean? Now, only two-thirds of trading actually sets the price of a stock that zips along the ticker, down from 80% in 2007. Where has all the trading gone?

Call it high frequency trading or automated market making or any number of other monikers, but trading isn’t happening on the exchanges. Instead, they might be traded within a dark pool, through a crossing network, or absorbed within the platform of a broker-dealer. The prices in these venues, however, don’t make it to the tape, and we are left with a question: is that a good thing? Read the rest of this entry »

Is the smoke clearing for expert networks?

From a modest hotel room in the Omni Shoreham in Washington DC, the SEC gathered a smattering of reporters, lobbyists, and others for a best practices seminar. But the somber title belied a dramatic observation to be made by an SEC official on expert networks. They’re not the problem.

Carlo di Florio, director of the U.S. SEC Office of Compliance Inspections and Examinations, spent just over six thousand words on reforms made under Chairman Mary Schapiro, the implementation of the Dodd-Frank Act, the focus on examination and training, and various enforcement actions in the advisory community. And then, almost 6000 words in and nearing his final remarks, he decided to “briefly mention the ‘Expert Network’ insider trading cases that the Commission and the Department of Justice have recently brought, and that have received much recent press coverage.”

Contrary to some reports that I have seen, I believe these cases do not represent some inherent hostility by the Commission toward expert networks Read the rest of this entry »

I strongly believe that the recent trend to patenting algorithms is of benefit only to a very small number of attorneys and inventors, while it is seriously harmful to the vast majority of people who want to do useful things with computers. When I think of the computer programs I require daily to get my own work done, I cannot help but realize that none of them would exist today if software patents had been prevalent in the 1960s and 1970s. Changing the rules now will have the effect of freezing progress at essentially its current level.

Donald Knuth, letter to the Commissioner of Patents & Trademarks, USPTO, February 1994

Inventions must be tied to a particular machine or transform something. Useful, concrete, and tangible result of State Street is inadequate.

David Kappos, Federal Circuit, in re Bilski, 30 October 2008

Patents aren’t bad. They’re an essential element of our economic system. The patent system and the 1952 shift to the protection of a process is the problem.

The 1952 Patent Act expanded coverage to include industrial processes. With the increasing importance of manufacturing to the economy, Congress had been successfully lobbied to provide a layer of protection around industrial manufacturing processes. With the Act, however, it introduced the framework by which to patent business processes – patents such as one click buy. The patents have muddied the water and introduced an expensive and chilling sense of uncertainty to business and information-oriented innovation.

Patents start with a basic tension. Economies benefit from the dispersion of ideas accompanied by sharing the details of inventions. Inventors, however, have little incentive to share the details if it results in no more than a roadmap for competitors to follow. Patents offer inventors a simple trade-off. Make public the details of your invention, and the government will in exchange grant the exclusive right to exploit it.

The 1952 Patent Act was designed to advance manufacturing quickly. Industrial processes, without the protection of a patent, might remain trade secrets, and these trade secrets were perhaps too valuable to the economy to be kept private. A patent system designed to protect them would open them up and accelerate growth. Or maybe it was more facile than that. Patents would provide legal protection and accrue enterprise to those that developed them. Either way, the patent system shifted from one organized around physical designs to one accommodating of processes. Read the rest of this entry »

The Speculations of Mr. Spectator

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  • the World is a Copy or a Transcript of those Ideas which are in the Mind of the first Being...those Ideas...are a Transcript of the World... 6 years ago
  • 'The Time was when all the honest Whore-masters in the Neighborhood would have rose against the Cuckolds to my Rescue' -letter... 6 years ago
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